Radio One, Inc.

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Radio One, Inc.

5900 Princess Garden Parkway, 7th Floor
Lanham, Maryland 20706
U.S.A.
Telephone: (301) 306-1111
Fax: (301) 306-9426
Web site: http://www.radio-one.com

Public Company
Incorporated: 1980 as Almic Broadcasting
Employees: 1,740
Sales: $303.2 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: ROIA
NAIC: 515111 Radio Networks

Radio One, Inc. is the largest broadcasting company targeting African American audiences in the United States. The publicly traded company, based in Lanham, Maryland, owns and operates 70 radio stations, making it the seventh largest radio broadcasting company in the country. Major markets served include Atlanta, Baltimore, Boston, Cincinnati, Cleveland, Columbus, Dallas, Detroit, Houston, Los Angeles, Miami, Minneapolis, Philadelphia, St. Louis, and Washington, D.C. In addition, Radio One programs "XM 169 The Power" for XM Satellite Radio, and partners with Comcast Corporation on a cable television channel targeting African Americans. Radio One is majority-owned by founder Catherine Hughes, the company's chairperson, and her son Alfred C. Liggins III, who serves as president and chief executive officer.

Founder's Radio Career Beginning in the 1970s

Hughes was born Catherine Elizabeth Woods in Omaha, Nebraska, in 1947, the child of academically oriented, African American parents. Her father was the first African American to earn an accounting degree from Creighton University, her mother earned a master's degree in social work, and her mother's father founded Piney Woods Country Life School, a Mississippi private boarding school for African Americans. Hughes herself became the first African American to attend Omaha's Duchesne Academy of the Sacred Heart. Although as a child she was known to carry a transistor radio everywhere she went, she was a good student. When she was 16, however, Hughes became pregnant, at a time when there was a greater stigma attached to teenage pregnancy. After her mother kicked her out of the house, Hughes married the father of her child, Alfred Liggins, Jr., but they were divorced after two years and she had to raise her son on her own while finishing high school. She went on to college, with stints at Creighton and the University of Nebraska, Omaha, but she dropped out before receiving a degree to pursue a radio career. While attending college she took a job in 1969 with a black radio station in Omaha, KOWH, where she performed well at a number of tasks and came to the attention of Tony Brown, the founder of Washington, D.C.'s Howard University's School of Communication. He first took her on as an administrative assistant in 1971 but soon made her a sales director at the school radio station, WHUR-FM. Within two years she was named general manager of the station.

During her time at WHUR, Hughes developed a highly popular format called the Quiet Storm, a late-night show that played urban contemporary love ballads. She was frustrated that university officials would not license the concept to other stations, not believing that Quiet Storm possessed staying power. The station was wrong, as Quiet Storm would become a mainstay around the country, the most listened to nighttime radio format. In the word of Hughes, "They basically threw a million-dollar baby out the window." Moreover, the experience created a desire in her to find a way to gain total control of her ideas and career. In 1978 Hughes became president and general manager at a new Washington, D.C. gospel radio station, WYCB-AM. Her stay was short, just six months, but Hughes learned how to grow a station from scratch. She decided, along with her second husband, Dewey Hughes, to buy and operate her own radio station.

The couple cobbled together $100,000 from their savings and $450,000 from investors, including $300,000 from Syndicated Communications Inc. (Syncom), an African American-owned venture capital firm that invested in African American-owned media. Although an experienced broadcaster, Hughes was naive about many aspects of business. When Syncom principals Herb Wilkins and Terry Jones initially asked her about her business plan, Hughes replied, "My plan is to become successful in business." Although embarrassed, she succeeded in getting their support. But she still fell short of the money she needed and turned to the banks for a loan. She was rejected by more than 30 banks before a Puerto Rican female loan officer, during her first week at Chemical Bank Corp., agreed to lend her $600,000. In 1980 Hughes and her husband started Almic Broadcasting, which a decade later would become known as Radio One.

The new company paid $950,000 for a Washington, D.C. 1,000-watt AM station, WOL, which could be acquired cheaply because it had recently been involved in a payola scandal. Against the advice of her backers, Hughes converted WOL to a 24-hour talk and news format, the first of its kind aimed at an African American audience. Although in the long run, she would be proven correct that there was indeed a market for such a station, Hughes did not understand that the talk format was the most expensive to operate, and WOL struggled for years to turn a profit. Hughes and her husband soon had difficulty meeting the monthly debt payments. To keep the station afloat, the couple lost their house and car, and Hughes even sold a rare family heirloom, a white-gold pocket watch made by slaves, which fetched $50,000. Finally the station cost her her marriage. Hughes's husband insisted that she either move to California, where he hoped to break into the music business, or they get a divorce. She chose to file for divorce and bought out his share of the business.

Struggles in the 1980s

Hughes endured considerable hardship as she nurtured Radio One to profitability, though she also found the challenge exhilarating. She drummed up advertising by going door to door to area merchants, and kept creditors at bay by making sure to at least send in a token amount of money along with a note explaining her situation. She filled in at the station as much as possible, running the switchboard, and picking up talk show guests in an old Chevy Nova. She and her son began to live out of the office, cooking on a hot plate and showering at the homes of friends. In 1982, after she had run the station for 14 months, the bank insisted that she would have to begin playing music or face foreclosure. They eventually reached a compromise that allowed WOL to keep the morning drive as a news, talk, and information show, but the bank refused to pay a salary for the slot. To get around the stricture, Hughes became the unpaid host of the show. According to Broadcasting Cable, "In her days as a talk-show host, Hughes was a firebrand in Washington's black community. Politicians picked her show to make major pronouncements. She led the criticism against then mayor Marion Barry's imprisonment on drug charges and organized a much publicized protest against the Washington Post for featuring a black rapper accused of murder on its first cover. She refused a grant—Maryland's first to a minority owned company—to protest the General Assembly's plans to expel a black state senator accused of ethics violations. And she faced charges of anti-Semitism and prejudice against whites and Hispanics."

In 1986 WOL finally turned the corner and became a profitable station. In that same year, Hughes attempted to buy a second radio station, WKYS, by forming a "community corporation," which managed to raise only $500,000, an effort that fell short. In 1987 Hughes succeeded in adding another property, buying WMMJ for $7.5 million. It became Radio One's first FM station, and was also the first FM station on the East Coast to adopt an urban adult contemporary format. Once again Hughes had to contend with input from the banks that financed the deal. At their insistence, in an effort to attract a white audience, the station installed the Evergreen computer system that programmed the station with music from mainstream white artists such as Barbra Streisand, Barry Manilow, and Neil Diamond. After watching the ratings decline for some 18 months, Hughes pulled the plug on Evergreen and began to rebuild the station's audience.

By now Hughes was being assisted by her son, Alfred C. Liggins III, whom she had been grooming to become a hardworking entrepreneur since childhood. When he was just 12 years old she made him take a job cleaning rabbit cages at a pet store. After he graduated from high school, he wanted to get involved in the record business, but she convinced him it was a better idea to work for the family business that he could one day take over. Therefore, in 1985 he became a salesman for WOL, but he was paid no salary, forced to survive on commissions alone. As a result, he learned how to work with advertisers and found ways to drive their businesses while growing his own. In 1993 he succeeded his mother as chief executive, although she remained heavily involved as the company's chairperson. During the early 1990s she also retired from her daily talk show, which she had only taken on as a necessity.

Radio One benefited from legislation in 1992 that loosened ownership restrictions in radio. Under the so-called duopoly rule, you could now own two AM and two FM stations in the same market. At the cost of $4.7 million Radio One acquired Baltimore's WWIN-AM and sister station WWIN-FM from respected African American broadcaster Ragan Henry. A year later Radio One added two more Baltimore stations, WERQ-FM and WOLB-AM, for approximately $9 million. The company's acquisition strategy was simple yet effective: Buy underperforming stations on the cheap in the top 30 markets for African American listeners, then turn them around. By 1994 Radio One generated $17.6 million in revenues.

Company Perspectives:

Our strategy is to expand within our existing markets and into new markets that have a significant African-American presence.

Radio One added to its portfolio of radio stations in 1995 with two purchases. It paid some $34 million for WKYS-FM, a Washington, D.C. station that the company had failed to buy in a 1990 attempt and resulted in the loss of a $200,000 deposit. Radio One also entered the Atlanta market with the $4.5 million acquisition of WHTA-FM. Revenues reached $23.7 million in 1996 and improved to $32.4 million a year later, and $46.1 million in 1998. Although the company posted net losses in two of those years, broadcast cash flow, an important measure in the industry, showed strong growth, improving from $9.8 million in 1996 to $13.5 million in 1997, and $21.6 million in 1998.

Ownership rules were loosened even further with the passage of the Telecommunications Act of 1996, which allowed ownership of more local stations and eliminated the cap on the number of stations a company could own nationally. Although Hughes expressed concerns that deregulation would lead to just a handful of companies controlling hundreds of radio stations, making it even more difficult for minorities and women to become owners, she also knew that if Radio One was to survive it had to continue to grow. During the second half of the 1990s the company went on an acquisition binge, adding stations and entering new markets. The company, in 1996, also moved its corporate offices from Washington, D.C., to the Maryland suburb of Lanham. In 1997 Radio One paid $20 million to buy WPHI-FM to enter the Philadelphia, Pennsylvania market. A year later the company completed several acquisitions, including the $3.8 million purchase of WYCB-AM, a Washington, D.C. station; two San Francisco stations at the cost of $22 million; the $26.5 million purchase of Detroit's WWBR-FM; and the $34.2 million acquisition of Bell Broadcasting Company, which brought with it three more Detroit radio stations. Furthermore, during 1998 the company began taking steps to go public, an idea that had been taking shape for several years.

Rapid Growth in the Late 1990s

It was a watershed year for Radio One in 1999. The company added a bevy of stations to its portfolio, including single operations in Atlanta, WAMJ-FM; St. Louis, WFUN-FM; and Boston, WBOT-FM. The company also bought a pair of Cleveland stations, WENZ-AM and WERE-AM, and three Richmond stations, WKJS-FM, WARV-FM, and WDYL-FM. To help finance these deals Radio One completed an initial public offering of stock in May 1999, underwritten by Credit Suisse First Boston, Bear, Stearns & Co. Inc., BT Alex. Brown, Banc of America Securities, and Prudential Securities. The company netted $172 million, the most ever by an African American company. Hughes also held the distinction of becoming the first African American woman to serve as chairman of a publicly traded company. Not only was the company able to pay down a considerable portion of its debt, it was now in a better position to borrow money under better conditions, and to use stock to make acquisitions and reward employees. Radio One soon returned to the markets for a secondary offering, grossing another $77 million.

The buying binge continued for Radio One in 2000. It paid $1.3 billion to Clear Channel Communications, the broadcast giant that needed to divest some stations because of antitrust concerns, to acquire 12 stations in six markets: Cleveland, Los Angeles, Houston, Dallas, Miami, and Greenville, South Carolina. Also in 2000 Radio One paid $40 million to acquire three Indianapolis radio stations and a low-powered TV station from Shirk Inc., as well as six radio stations in Charlotte, North Carolina, and Augusta, Georgia, from Davis Broadcasting for $24 million in cash and stock. Because of its broader footprint, Radio One was now able to offer package deals to advertisers looking to reach the urban market on a national basis. To handle this business, the company formed a small national sales staff operating out of Washington and Detroit. Because it was now emerging as a major player in the radio industry, Radio One also attracted the attention of ABC Radio Networks, which in 2001 established an alliance with the company and ABC's Urban Advantage Network (UAB), geared toward the African American market. By devoting some of its commercial time to UAN, Radio One increased its national penetration, and UAN was now able to reach 93 percent of the African American market.

The impact of adding 21 radio stations in 2000 was evident on Radio One's balance sheet. Revenues grew to $155.7 million in 2000, almost double the $81.7 million generated a year before. In 2001, with a full year of contribution from the new stations, that total grew to $243.8 million. Also during the year, Radio One bought 15 stations from Blue Chip Broadcasting Inc. for $135 million in cash and stock. New stations included one in Minneapolis, a pair in Cincinnati, three in Columbus, four in Dayton, and six in Louisville. In addition, Radio One adjusted the mix of its portfolio in 2001 by selling a few stations, including WDLY-FM in Richmond, WJMZ-FM and WPEK-FM in South Carolina, and WARV-FM in Virginia.

Not content to merely own and operate a string of radio stations, Liggins harbored a goal of building a media company with wider scope. Acquiring a low-powered television station with cable penetration was in keeping with this goal, as was striking a deal in 2002 with XM Satellite Radio Holdings Inc. to provide a channel on the nationwide subscription-based radio service. But Liggins's dream was to launch an African American targeted cable television station to rival Black Entertainment Network. In 1999 he had realized that while Hispanics had several channels, African Americans had just one station, BET, aimed at them. He began seeking partners and finally found one in Comcast Corporation. The two companies agreed to establish TV One L.L.C., a cable TV network, 40 percent owned by Radio One, that would target an older and more affluent age group than BET, 25-to-54. Whether TV One would begin a new chapter for Radio One, marking a seminal point in its growth as an African American media empire, remained to be seen, however.